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The Huffington Post

Pharma Deal With White House on Course to Net Industry Billions

Sam Stein

The deal struck between the pharmaceutical lobby, the White House and Senate Democrats has drastically improved Big Pharma's expected profits, a private industry report finds. (flickr photo by Brooks Elliott)

deal struck between the pharmaceutical lobby, the White House and
Senate Democrats has drastically improved Big Pharma's expected
profits, a private industry report finds.

IMS Health, a company that supplies the pharmaceutical companies
with sales data, predicts that new health reform legislation --
combined with a projected upswing in the economy -- will result in a
net gain of more than $137 billion in total market sales over the next
four years. The new assessment was contained in document obtained by
the Huffington Post.

Back in March, that same firm projected a compound annual growth
rate of -0.1 percent in the period of 2008 through 2013. In October,
with the general outlines of health care reform clearly in place, it
revised that number to a positive 3.5 percent for over the same period.

What happened in those seven months? The economy started looking up,
for one, as did the overall prospects of health care reform. But the
industry also won a major lobbying victory.

PhRMA, the lobby entity for the industry's heavy hitters, reached a
secret deal with the White House and the Senate Finance Committee in
June. As detailed in a memo first published by The Huffington Post,
the Obama administration agreed to oppose congressional efforts to use
government leverage to bargain for lower drug prices. The White House
also agreed not to shift some drugs from Medicare Part B to Medicare
Part D, which would have cost the industry billions in reduced
reimbursements. All this in exchange for $80 billion over ten years to
help push for reform.

The Senate version of the healthcare bill still conforms
to the deal (that the White House has still never officially
confirmed). The House bill is in the same ballpark, although it would
cost Big Pharma an extra $14 billion.

The IMS, in its revised October findings, did not reference the deal
specifically, but rather made note of what it called a "NEW EVENT" --
mainly that health care reform "could lead to higher priced branded
products and increased healthcare coverage across the USA."

"Branded drug price increases are expected to continue," the firm
concluded, before citing the specific reforms of the PhRMA deal.

America's Affordable Health Choices Act of 2009 (HR 3200)
has proposed several changes to the Medicare Part D program that would
impact federal spending. Firstly, it would create a new rebate program
that would require manufacturers of brand-name drugs to pay the federal
government a rebate equaling 15% of the average manufacturer price. The
finer details of the rebate will be determined as the reform
legislation develops. Secondly, it would phase out the doughnut hole by
simultaneously extending the benefits initial coverage limit and
lowering the catastrophe threshold at specified rates leading to
removal of the doughnut hole by 2022. Thirdly, as the doughnut hole is
being phased out drug makers would be required to provide beneficiaries
who are not eligible for the low-income subsidiary programme with a 50%
discount on their spending in the doughnut hole for covered branded
drugs. This initiative could create new business for pharmaceutical
companies and also give seniors a price break, but only if they were
paying full price on the brand product in the first instance. For
pharmaceutical companies the agreement will lead to a loss if the
senior was paying full price, but a win if the senior was not buying
brand products at all. By making branded drugs in the doughnut hole
more affordable patients may be able to afford to continue with


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As explained by The New Republic's Jonathan Cohn (who got the IMS document first):

Health reform, as currently envisioned, wouldn't merely
bring coverage to the uninsured. It would also fill in the "donut hole"
in Medicare Part D--the gap in coverage that leaves beneficiaries with
serious health problems paying for hundred if not thousands of dollars
in out-of-pocket prescription costs.

In addition, because it will take several years to close the donut
hole, reform relies on voluntary discounts from the pharmaceutical
industry to make drugs more affordable in the intervening years. But
those discounts would apply only to name-brand drugs, not generics.

Put it all together, and you have more demand for name-brand drugs.

The structure of health care reform, as IMS goes on to note, will
have benefits for the federal government, which could save an estimated
$30 billion from 2010 through 2019. Patients, meanwhile, would be
paying higher premiums -- roughly five percent more by 2011 -- in
return for what the report calls greater "protection against incurring
higher drug costs." The real beneficiaries of reform, however, would
evidently be the pharmaceutical industry.

IMS's conclusions are one of the clearest affirmations yet of
various media reports that PhRMA is coming out of its negotiations with
the White House and the Senate as a big winner -- though, as Cohn
notes, the numbers IMS uses are simply projections and they may not
necessarily bear out.

In a twist of sorts, it was the March IMS study that served as a
small pillar in PhRMA's push to get a deal with the White House and
Senate Democrats in the first place. In the press release touting its
$80 billion commitment, the lobbying entity, along with affiliated
institutions, warned that, "Medicines have already begun to play a key
role in bending the cost curve in the U.S,"

"In 2009, IMS projects that the U.S. market for prescription
medicines will contract, declining 1-2% below 2008 levels. Going
forward till 2014, IMS projects annual growth rate for prescription
medicines to remain essentially flat."

At the time, PhRMA was making the case that the $80 billion it was
offering for reform was a major concession to the White House and
Senate Dems. Compared to the new numbers, however, it doesn't look like
such a big concession anymore.

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